Vodafone pays zero tax on 84 billion pound windfall

03/09/2013

Getty Images

Vodafone is set to pocket around £84 billion from its stake in US telecommunications giant Verizon. Aha, says the British taxpayer, a chance to squeeze some revenue out of the notoriously stingy mobile phone company. They might be adept at avoiding tax on their profits, but surely they can't dodge capital gains tax? Think again. Their tax bill on the deal will be a big fat zero.

The sums exchanged are enormous. Vodafone held a 45 percent stake in Verizon and is selling it back to the American company for that £84 billion. The average tax payer might say, hold on, if I had a holiday home and sold it for a profit of £84,000, the taxman would be holding out his hand for a share. Vodafone though are above such considerations.

Robet Peston, the business editor of the BBC, struggled to exclain the deal. It seems the loophole is that Verizon is a US company whose holding company is in the Netherlands. The British and the Dutch won't be getting any money, although the rather more robust US tax authorities will take a $5 billion slice.

Vodafone shareholders will be cracking open the champagne as they will be enjoying a substantial dividend. British investors alone, about half a million of them, will be sharing out around £17 billion. In fact the cash influx is so vast that it could even be seen as a boost to the UK economy if those shareholders see fit to reinvest in UK companies. We won't hold our breath.

Vodafone is brazenly confident that there is no tax liability on the profit, even without the Dutch loophole. They point at New Labour legislation waiving tax on "substantial shareholdings." Not that the tax authorities are likely to pursue Vodafaone in any case. The UK's Inland Revenue notoriously waived a £7 billion tax liability from Vodafone in 2010, while Prime Minister David Cameron attempted to intervene on the company's behalf when the Indian government pursued Vodafaone for back taxes.

In fact Cameron was so impressed by the company's financial adroitness that he appointed Andy Halford, the finance director of Vodafone, to the government’s Advisory Board on Business Tax Rates.